Updates from Hearings
Wednesday - 6/11/2008
Today, the Missouri Public Service Commission convened a two-hour hearing to discuss whether the crane collapse at the Iatan construction site on May 23 has the potential to negatively impact the credit ratings of Great Plains Energy and Kansas City Power & Light. The three witnesses that provided testimony today were Terry Bassham, Chief Financial Officer of KCP&L and GPE; Michael Cline, GPE Treasurer; and Brent Davis, Iatan Unit 1 Project Director.
- Terry Bassham began by providing an overview of the crane accident as well as the current status of the accident investigation. He testified that the Executive Oversight Committee (EOC) met yesterday and reviewed the construction plans put forward by Alstom, KCP&L's principal contractor for the Iatan construction project. Bassham said that, despite the incident, Alstom indicated they can maintain the current Iatan 1 schedule and cost projection. In addition, the accident should have no impact on Iatan 2 construction costs nor schedule. Bassham also explained that GPE recently held its annual meetings with the credit rating agencies. The company's current financial conditions were discussed, including the sale of Strategic Energy and the results of the Iatan reforecast. The meetings went well, and neither Standard and Poor's nor Moody's have made a change to GPE's or KCP&L's credit rating.
- Brent Davis explained that due to the recent project reforecast, the planned Iatan 1 outage has been delayed 30-45 days and that Iatan 1 is now scheduled to return to service on February 1. He also provided additional explanation of Alstom's plans for continuing with Iatan 1 construction. Davis added that he doesn't believe there will be an impact on the Iatan 1 budget and that the project contingency in place is adequate. He indicated that KCP&L believes that Alstom's recovery plan contains several options that should enable Alstom to complete its work at Iatan Unit 1 on or near schedule.
- Michael Cline described a conversation with Moody's following the Iatan crane accident in which a representative indicated that they would not change GPE's or KCP&L's rating based on a single event. KCP&L agrees that the crane accident will not materially change the financial assumptions relied upon by the credit rating agencies.
During closing arguments, Karl Zobrist spoke for Great Plains Energy and reiterated that no evidence had been presented indicating that the crane collapse would have a material impact on credit agency assumptions or on cost and schedule. Before adjournment, the Administrative Law Judge officially closed the public record on Great Plains Energy's proposed acquisition of Aquila and submitted it to the Commissioners for their decision in the case. It is likely that the MPSC will rule on the merger in July. Continue to check www.oneregionalutility.com for updates.
Tuesday - 6/3/2008
Earlier today, the Missouri Public Service Commission approved the motion of the Industrial Intervenors in the Aquila transaction case for a single-day hearing on June 11 to determine whether the crane collapse on May 23 will affect Great Plains Energy's and Kansas City Power & Light's credit ratings going forward. The Intervenors believe that the collapse could cause a delay in construction such that bringing the Unit 1 investment online would be delayed.
Although KCP&L has not completed its investigation of the Iatan crane incident, the early assessment is that several options are available that should allow the project to meet the Unit 1 schedule and costs. It is also important to note that the reforecast budget for Iatan 1 contains an unallocated reserve contingency to cover costs associated with unanticipated events. At present, the crane incident does not appear to materially change the financial assumptions relied upon by the credit rating agencies.
GPE and KCP&L will continue to fully cooperate with Commission requests. The companies desire to complete the approval of the Aquila transaction by the contractual deadline in order to allow customers to begin realizing the benefits of a strong regional utility.
Thursday - 5/1/2008
Today was the final day of Missouri Public Service Commission hearings on the proposed acquisition of Aquila by Great Plains Energy. Commissioners Murray, Clayton and Jarrett were all present.
Thursdays proceedings began with Stu Conrad's & David Woodsmall's (Ag Processing) offer of proof regarding additional amortization. Woodsmall called three witnesses, Michael Cline, GPE Treasurer; Russ Trippensee, Office of Public Counsel; and Bob Shallenberg, MPSC Staff. All three testified on various aspects of amortization, including identifying the financial trigger mechanisms that allow for additional amortization.
Following the offer of proof, Commissioner Clayton recalled Bob Shallenberg to answer additional questions about the MPSC staff's position on the proposed acquisition of Aquila.
The day's hearing concluded with a discussion between the Commissioners and attorneys about several legal and procedural issues related to the case. The proceedings concluded with the Administrative Law Judge setting June 2 as the date to receive post-hearing briefs. A decision on the case is then expected in June or July.
Continue to visit www.oneregionalutility.com for the latest news and updates on the acquisition.
Wednesday - 4/30/2008
Today was the seventh day of Missouri Public Service Commission Hearings on Great Plains Energys proposed acquisition of Aquila. The focus of todays testimony was on the Iatan project reforecast and its impact on the credit worthiness of the company.
Today's Highlights:
- Steve Easley, KCP&L SVP of Supply, spent much of the morning on the witness stand and provided additional information about the Iatan construction projects control budget and initial schedules. He also explained the roles and responsibilities of various individuals in preparing the subsequent risk and opportunity analyses and the current Iatan reforecast. He testified that potential risks include weather, labor availability, materials, and quality control issues. According to Easley, the reforecast is currently undergoing final vetting and review by both employees and an outside consultant and will be presented to the Board of Directors and joint owners beginning next week.
- Brent Davis, Iatan Unit 1Project Director, and Terry Foster, Iatan Project Controls Director, provided further information on the Iatan risk/opportunity tables and explained that this type of analysis is an input to a reforecast, rather than a reforecast itself. They both explained that the reforecast process began in December of 2007 and indicated that the need for a reforecast became apparent when project leaders had seen enough movement and trending in the risk and opportunity analysis to feel that one was warranted. Both Davis and Foster expressed their confidence in the validity of the current reforecast numbers and overall process.
- Max Sherman, Aquila VP of Strategic Initiatives, explained his role as a minority owners representative on the joint owners committee. He testified to his knowledge of the reforecast process and the dates for projected completion.
- The two witnesses offered by the MPSC staff and the Office of the Public Counsel, Bob Schallenberg and Russ Trippensee, received no questions from any of the parties.
- Bob Zabors from Bridge Strategy Group was the final witness of the day and testified on the role that Bridge consultants have played in assisting Great Plains Energy with the proposed acquisition. He explained to the Commission the process by which Bridge consultants track their time spent on projects and allocate them to either transaction or transition costs. He also spoke to the significant utility experience possessed by the Bridge consultants.
Thursday is scheduled to be the final day of the hearing. Be sure to check the Web site tomorrow for a final wrap up summary.
Tuesday - 4/29/2008
Tuesday was the sixth day of the Missouri Public Service Commission hearings in Jefferson City on the proposed acquisition of Aquila by Great Plains Energy. Witness testimony focused almost exclusively on the credit worthiness of the transaction and the results of the upcoming Iatan reforecast.
Highlights from Day 6:
- Chris Giles, KCP&L VP of Regulatory Affairs, responded to attorney questions about the timing and rationale for the reforecast and provided additional background on the reforecast process. Giles went on to describe the cost control system that is in place and explained the system worked as expected to alert the Executive Oversight Committee (EOC) of the need to conduct the reforecast.
- Bill Downey, KCP&L President and CEO, explained the basis of the control budget estimate for the Iatan projects. He also expressed the EOC's high degree of confidence in the preliminary Iatan reforecast numbers they received last Friday. Next week, the reforecast numbers are expected to be released publicly once they have been presented to the Board of Directors and other Iatan owners. Downey also indicated that an additional Iatan 2 reforecast would likely be conducted later this year when engineering for the project reaches 90 percent completion. When asked about the potential impact of the acquisition on credit ratings, Downey said that GPE and KCP&L are very strong financially and that there is a plan in place to manage both the acquisition and the Comprehensive Energy Plan projects. He said that he expects to see GPE's and KCP&L's credit ratings remain the same as a result of the acquisition and anticipates an improvement in outlook pending Commission approval.
- Mike Chesser, GPE Chairman and CEO, was questioned further about oversight of KCP&L's Comprehensive Energy Plan projects. He said an executive oversight committee was prudent given the complexity of the CEP projects. He also spoke to his 30 years of regulated utility experience and testified that the comprehensiveness of the Iatan reforecast was not unusual given the size and scope of the projects involved as well as the need to discuss and vet time and cost issues with major contractors. Chesser stated he believes that the credit rating agencies will see the Aquila acquisition and the resolution of the case as positives.
- Michael Cline, GPE Treasurer and Chief Risk Officer, provided additional information regarding the assumptions that were provided to the two credit rating agencies, Standard & Poor's and Moody's. Because of the classified financial information that was discussed, much of Cline's testimony was held in closed session. He explained that once the Iatan reforecast results are public, GPE and KCP&L would likely prepare a revised financing plan for the project.
Tomorrow, the Commission is scheduled to hear additional credit worthiness testimony from up to eight witnesses from GPE, KCP&L, Aquila, and the MPSC staff. Be sure to check back tomorrow for the latest from the MPSC hearings.
Monday - 4/28/2008
Today was the beginning of the second week of hearings before the Missouri Public Service Commission on the proposed acquisition of Aquila by Great Plains Energy. The topics included municipal franchises with the cities of Kansas City and St. Joseph, quality of service plans, and the credit impact of the acquisition.
Day Five Highlights:
- Wayne Cauthen, City Manager of Kansas City Missouri, testified on the nature of the relationship between the City and KCP&L. He explained that KCP&L has worked with the City on the recent downtown development projects and also partnered with the City on its emergency management, weatherization, and environmental programs. He went on to explain the elements that the City would like to explore in a new franchise agreement with KCP&L.
- John Marshall, KCP&L SVP of Delivery, provided details on the current status of both the KCP&L and Aquila franchise agreements with the City of Kansas City and St. Joseph. He explained the difference between "service" centers and "call" centers and how many there would be of each in the new organization.
- Bill Herdegen, KCP&L VP of Customer Operations, provided additional detail about how the proposed synergy savings would be achieved between KCP&L and Aquila through combined operations. Under cross examination from the attorney representing the five local chapters of the International Brotherhood of Electrical Workers, Herdegen outlined how KCP&L is approaching discussions with the local bargaining units, including the possible conversion of some labor jobs to management positions as well as the possible conversion of management positions to union jobs. Currently, KCP&L's bargaining units are organized by process function whereas Aquila's bargaining units are organized by geography. He also provided additional detail on the proposed makeup of the new field organization, including the new role of Division Managers in St. Joseph and Warrensburg.
- Terry Bassham, GPE CFO, returned to the witness stand to discuss the potential credit impact of the Aquila acquisition. He provided background on the relationship between Great Plains Energy and the rating agencies, Moody's and Standard & Poors, as well as information on the process the agencies undertake to determine a company's credit rating. Bassham explained that although the proposed acquisition of Aquila does involve some additional risk, in and of itself, it should not cause GPE's credit rating to be downgraded. He reiterated his confidence in GPE's ability to finance both the acquisition and elements of the Comprehensive Energy Plan.
Tomorrow, Commissioners are scheduled to hear from a number of KCP&L/GPE witnesses, including Chris Giles, KCP&L VP of Regulatory Affairs; Bill Downey, KCP&L President and CEO; Mike Chesser, GPE Chairman and CEO, and Michael Cline, GPE Treasurer and Chief Risk Officer. All are expected to give further testimony on the credit worthiness and financial aspects of the acquisition. Be sure to check back tomorrow for a recap of the MPSC hearing proceedings.
Thursday - 4/24/2008
Thursday marked the fourth day of the Missouri Public Service Commission hearings on Great Plains Energy's proposed acquisition of Aquila. Today, the Commission heard from several witnesses on transaction cost recovery and the affiliate transactions rule.
Day Four Highlights:
- Great Plains Energy offered three witnesses, Terry Bassham, Great Plains Energy's CFO; Lori Wright, KCP&L Controller; and Tim Rush, KCP&L Director of Regulatory Affairs. All three testified on the transaction and transition costs associated with the acquisition. Bassham and Wright discussed the internal controls that are in place to minimize the transaction and transition costs and, that as part of the proposal, Great Plains Energy is seeking authority to defer the transaction and transition costs to future rate cases. Rush provided additional explanation on how the transaction and transition costs are being allocated.
- Bob Schallenberg, Director of the MPSC Utility Services Division, appeared for the second time at the hearings and testified on both transaction costs and the affiliate transaction rule. Schallenberg explained why the Staff of the MPSC is opposed to the potential future rate recovery of the acquisition transaction costs.
- In addition, the Commission granted the motion filed by Great Plains Energy and KCP&L to limit the scope of the hearings. A number of issues that were to be considered next week were ruled to be irrelevant and excluded from the case.
The hearings currently stand in recess until Monday, April 28. Next week, the Commission will hear testimony on a number of issues, including service quality, franchise agreements, and the impact of the Iatan project on Great Plains Energy's credit worthiness and on the acquisition.
Wednesday - 4/23/2008
Wednesday was the third day of the Missouri Public Service Commission hearings on Great Plains Energy's proposed acquisition of Aquila. Today, witnesses continued testimony regarding the estimated $755 million in total 10-year estimated synergy savings resulting from combining the two companies.
Day Three Highlights:
- Paul Van Dyne, Great Plains Energy's Director of Compensation and Benefits, explained the plan to combine the bargaining units from both companies and how benefits would be handled after transaction close.
- Lori Wright, KCPL Controller, provided additional explanation about the calculations that were used to determine the projected synergies from the transaction.
- Office of Public Council witness Jim Dittmer testified about the projected synergies and how they were calculated. He confirmed that the purchase price for Aquila was in line with other utility acquisitions. Dittmer also explained that the synergies would require some up-front spending and acknowledged that the joint applicants would not seek to recover transaction and transition costs until synergies were recovered to pay for them. Dittmer testified that because KCP&L and Aquila share adjoining service areas, there would be significant synergies as a result of the proposed transaction.
- Bob Schallenberg, Director of the MPSC Utility Services Division, testified in the afternoon. He was questioned about the MPSC staff's resources available to review mergers; his opinion on synergy calculations; and the extent of the Commission staff's analysis of the proposal.
Tomorrow, the Commission is scheduled to hear from Terry Bassham, Lori Wright, and Bob Schallenberg about transaction cost recovery and the affiliate transactions rule waiver/variance. Be sure to check back here for future updates from the hearings.
Tuesday - 4/22/2008
Today marked the second day of the Missouri Public Service Commission hearings on Great Plains Energy's proposed acquisition of Aquila. Great Plains Energy presented numerous witnesses who discussed the $755 million in total 10-year estimated synergy savings resulting from combining Aquila and KCP&L operations. Witnesses testified that the synergy estimates, which are both reliable and highly achievable, were developed by experienced managers and integration teams and validated by third-party experts with extensive experience in utility acquisitions.
Day Two Highlights:
- Chris Giles, KCP&L VP of Regulatory Affairs, explained the proposed structure of the new organization, including how costs will be allocated to both Aquila and KCP&L customers.
- Lora Cheatum, KCP&L VP of Administrative Services, indicated that there would be an estimated $140 million in operational and supply chain synergies. The proximity of the two companies makes many operational synergies easier to achieve than in other utility acquisitions where the companies have few, if any, contiguous areas. Examples of significant savings come from consolidating inventory, vehicles, and facilities.
- Dana Crawford, KCP&L VP of Plant Operations, described the process that the Plant Operations Integration Team, consisting of both KCP&L and Aquila employees, employed in identifying $28 million in generation synergies. He indicated that these are conservative estimates and that he is highly confident in Great Plains Energy's ability to achieve the estimated synergies.
- Additional witnesses, including Kevin Bryant, KCPL VP of Energy Solutions; Chuck Tickles, KCPL VP of Information Technology; Tim Rush, KCPL Director of Regulatory Affairs; and Bob Steinke and Wallace Buran of Bridge Strategy Group, all testified to the conservative and detailed nature of the estimated synergy savings.
Tomorrow, the Commission is scheduled to hear from additional Great Plains Energy and intervenor witnesses regarding synergies. Be sure to check back here for future updates from the hearings.
Monday - 4/21/2008
Today, we resumed hearings in front of the Missouri Public Service Commission to obtain the final approval necessary to close on our acquisition of Aquila. For the first time, we were able to share details with Commissioners about the revised acquisition plan we introduced in February. As you will recall, this proposal is our effort to address many of the concerns heard in the initial round of hearings.
Our revised proposal includes changes that will deliver savings to customers sooner, improve the credit position of Aquila, and maintain the credit position and financial flexibility of GPE and KCP&L.
Issues that were discussed during Day 1 testimony included:
- Validation of our synergy estimates: We again explained that our synergy estimates are realistic and achievable and also emphasized that customers would not be responsible for transaction and transition costs unless we recover synergy savings. Under our revised proposal, customers assume less risk than before, yet still stand to benefit from the nearly $350 million in net savings.
- Credit rating: We presented our financial plans to support our revised proposal and continue to feel confident about our ability to adequately finance all of our activities.
- Amortization: We explained to the Commissioners that we are not seeking amortization as part of our revised proposal. Any request for amortization would be a part of future rate cases.
